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Tuesday, February 28, 2006

Pension scandal could rival pay-jacking

If Pennsylvania voters were outraged by last July’s Legislative pay grab, wait until they get a wind of the looming pension crisis that state politicians concocted.

The Legislative pay-jacking is peanuts compared to potential economic impact involving pensions handed out by Pennsylvania politicians to themselves and to the state's retired teachers.

The pay raise, which was repealed following months of public outcry, would have cost taxpayers about $20 million a year. The pension scandal has a potential price tag of $4.5 billion.

A new study from the Harrisburg-based Commonwealth Foundation, "Beneath the Surface: Pennsylvania’s Looming Pension & Health care Benefits Crisis," says taxpayers will be funding a 672-percent increase in pension contributions — from $584 million in Fiscal Year 2004-05 to more than $4.5 billion in Fiscal Year 2012-13 — for the State Employees Retirement System (SERS) and Public School Employees Retirement System (PSERS).

Would it surprise you to learn that the gang that tried to raise its own salaries 16 percent to 54 percent with a 2 a.m. vote on July 7, 2005, also gave legislators, judges, school employees and other state workers outrageously generous taxpayer-funded pension benefits?

All of this comes at a time when many Pennsylvania retirees have lost their pensions or had them severely reduced by employers. Instead of pushing for an increase in the state’s minimum wage, perhaps Gov. Ed Rendell could level with taxpayers about the massive debt they face to ensure that state politicians retire in style.

"In a world where private-sector benefit cutbacks and cost reductions occur on a daily basis, state government in Harrisburg has not responded in similar fashion," says Rick Dreyfuss, author of the report and the former director of compensation and benefits at The Hershey Company. "In fact, instead of reducing the potential for financial disaster, actions in recent years have served to accelerate the coming crisis in Pennsylvania."

Dreyfuss says the looming fiscal crisis is a direct result of legislation passed in 2001 and 2002 that generated $10 billion in additional unfunded liability. Legislation passed in 2003 served to refinance many of these additional costs over a 30-year period. To be fair to Rendell, the 50-percent increase in pensions for Legislators and others was signed into law by then-Gov. Tom Ridge, but many of the incumbent politicians in Harrisburg played a key role in lining their own pockets.

"Without significant changes in the design of both pension and retiree health care benefits plans, the taxpayers of Pennsylvania will likely be facing unaffordable costs," Dreyfuss concludes.

The study surveyed major private employers in Pennsylvania for comparison with the PSERS and SERS pension plans and found that not only are the pension plans for Legislators, judges, the governor, public school employees and other state workers among the most generous among taxpayer-funded plans in other states, but they are far more generous than what can be found in the private sector, Dreyfuss concluded.

"These benefits plans are operating in a vacuum, and without regard to either the taxpayer or global economic realities, which puts taxpayers in financial jeopardy," Dreyfuss said. "State government, like every employer in the private sector, must adopt more predictable and affordable retirement strategies."

In addition to the massive bill taxpayers face to fund these pensions, government accounting changes that take effect in 2007 will require Pennsylvania state government to annually recognize future retiree health care costs. State retiree health care benefit programs surpass those found in any Pennsylvania company studied by Dreyfuss.

Eventually, all Pennsylvania municipalities and school districts will be forced to adopt this change in accounting practice. And that means higher property taxes for Pennsylvania homeowners. So much for those tax rebates that Rendell and the Harrisburg Hogs are promising to deliver before Election Day.

The 40-page report on Pennsylvania’s pension crisis is available online at www.CommonwealthFoundation.org or by calling 717-671-1901.

As you contemplate where you’re going to cut back in your household budget to keep Gov. Rendell and the Legislators in the lifestyle of the rich and famous they’ve become accustomed to, keep in mind that the primary election is May 16 and the general election is Nov. 7.

Rendell, all 203 members of the state House and 25 of the 50 state Senators will be on the ballot. You can give the incumbents your opinion of the pension mess they’ve created by voting all of them out of office.

Tony Phyrillas is a columnist for The Mercury in Pottstown, PA. E-mail him at tphyrillas@pottsmerc.com

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